The Global Financial Report Card

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I might be showing my age here, but I remember getting my school reports on carbon paper. If nothing else, I deserved an ‘A’ for creativity – I was an expert in making a ‘D’ look like a ‘B’, for the benefit of my parents.

Now I’m an adult I find the report cards still come, but as financial figures (which are a lot harder to fudge). So, given that were on the precipice of a new financial year, we’re all eagerly awaiting our personal report cards. But, as we’ve seen over the last couple of years with the GFC, your financial returns largely depend on what’s happening in the rest of the class – that is, the global economy.

So, with red biro in hand, let’s write a few report cards.

Europe – ‘F’ for Fraud

The Europeans, especially those four little pigs (Portugal, Italy, Greece and Spain) who sit up the back causing trouble, should be sent to detention. They’ve put in a woeful year, and they thoroughly deserve their F rating.

For years many of these European governments fudged their figures while racking up huge amounts of debt.

When the GFC hit, these governments were caught out by their lenders – who grew increasingly worried about having their money repaid – and demanded higher returns as a consequence.

Usually, when a country gets into this situation its currency drops, which in turn prompts the recovery because exports are cheaper. Yet because the PIGS are part of the euro this can’t occur.

Final remarks: More bad news is on the way for Europe. They pay only lip service to putting in the effort required to get a good grade.

The United States – ‘D’ for Debt

This former star student has really not been doing its homework over the past few years. It all started with the subprime mortgage crisis (which disrupted the rest of the class).

In response the US Government embarked on an unprecedented spending spree – printing a massive amount of debt that will need to be eventually repaid either through spending cuts, higher taxation, inflating the money away, or all of the above. None of which is good news.

While this financial year the US has shown signs of strength and recovery, this is mainly due to government spending. Private enterprise has been doing the exact opposite – busily paying off debts, and perhaps preparing for worse to come.

Unemployment at 30-year highs doesn’t bode well for the ongoing mortgage meltdown, which is seeing an ever-growing rate of foreclosures.

Final remarks: While I’m sure Barak would like to fudge that D into a B, there’s no chance of that happening. In fact he’ll have to work very hard to even maintain his D next year.

China – ‘B’ for Boom

The Chinese are great students. They’ve been sitting up the front of the class for so long with their hands up in the air that we almost forget to pay attention to them these days.

So why don’t they deserve an A? Well, there is increasing worries over a hot housing market, which the all powerful Party is trying to hose down before anyone gets into (too much) trouble.

As with any developing country, workers (and therefore the country) are growing more prosperous and will be demanding higher wages, which will lead to higher prices (i.e. inflation).

Final remarks: The Party is pushing its kids to study harder and harder – but ever so often there are signs they need to just blow off a little steam.

Australia – ‘A’ for Avoidance

While the rest of the class descended into anarchy, Australia sidestepped the trouble by sucking up to those smart Chinese kids, and bringing lollies to class.

Australia is one of the few countries that have avoided a recession. We’re the only country whose property bubble has not burst. And that’s despite a 1.5 per cent increase in official interest rates – already some of the highest in the developed world.

When you get your superannuation statement for this financial year, expect to see a 10 per cent return, which after two years in the red is good mail to get.

But even good returns can turn sour quite quickly – just ask Kevin. The problems that continue to engulf the rest of the world will weigh heavily on us over the next few years.

Final remarks: A good result this year. Just make sure you sit tight with those Chinese kids in the future – without their help, you’re on your own in the playground.

Your Report Card

So how does your financial report card look? If you’re like most of us, you probably know you could do a bit better. Here are some simple homework exercises that’ll lift your grades for next year.

Put your money on autopilot

Direct debits are a great way to avoid the monthly paper shuffle, not to mention those nasty late fees. ANZ has a nifty online application called Money Manager that allows you to group all your different bank accounts (even those not with ANZ), rewards schemes and broking accounts on the one page. It then analyses the transactions for free.

Get the best deal

The start of a financial year is as good a time as any to ring up all your suppliers (banks, phone companies, internet providers) and see if you can get a better deal. The dirty secret no supplier wants to admit is that it costs much more to find a new customer than to keep an old one happy. In other words, ‘don’t ask, don’t get’.

Sort your super

When your super statement arrives in the mail – read it! Here’s what you should be looking for: Where is your money invested? Are you comfortable with the level of risk they’re taking? And how much are you being charged in fees? Anything over about 1.5 per cent is too high, and warrants a ‘please explain’ phone call.

Protect yourself

Most people insure the things they love – cars, homes, and plasma TVs – hell, even Big Merv Hughes once insured his moustache for over 300 grand. Yet many people fail to protect their biggest asset – their ability to earn an income. Few understand that income protection insurance is offered by many leading funds. So ring your super fund and see what level of coverage they can offer.

Get some Mojo

I get a lot of mail from people of all ages, and my first advice is always to start with savings – which in Barefoot land we call Mojo Money. Retirees need it so they don’t have to sell in rocky investment markets, and young first homebuyers need it before they enter into a 25 or 30 year commitment.

So make sure one of your direct debits is to either a high-interest online account, or (for mortgage holders) an offset account. You’ll be glad you did as this coming financial year promises to be anything but business as usual.

By putting in place these simple steps you won’t have to worry too much about your report card the next financial year.

Tread Your Own Path!

Photo: http://www.flickr.com/photos/ciadefoto/4779866206/

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